18000 points is the bottom of the Hong Kong stock market? How to understand the "risk on" that exceeds expectations?

1. Previously, it has been emphasized that the July meeting is the "policy bottom" of this round. Recently, there has been an increase in policy intensity (reducing ERP). Last night's real estate policy was a major turning point, further clarifying the intensified measures (increasing EPS). The difference between China and the US ERP reflects the difference in macroeconomic conditions between the two countries, and its extremely low value represents a typical policy bottom in history.

Looking at several typical "policy bottoms" in 2018 and 2022, after the "adjustment shift," a combination of policies was introduced intensively within one month, which has become the benchmark scenario. The previous policy intensity did not meet the market's expectations in terms of density, which also hindered short-term risk-on sentiment.

Since the Ministry of Finance of China announced the halving of stamp duty on August 27, there has been a significant increase in policy intensity this week, focusing on "active capital markets" and "adjusting and optimizing real estate policies." On the evening of August 31, the real estate policies, such as "Adjusting and Optimizing Differential Housing Credit Policies" by two departments, exceeded expectations and further clarified the intensified measures, effectively mitigating the downside risks of the economy.

2. This round of new policies is of great significance against the backdrop of poor repair of residents' balance sheets. The real estate industry chain market draws on the experience of the four previous cycles of real estate relaxation.

On August 31, the policies were optimized in three aspects: lowering the down payment ratio, lowering the interest rate policy for second homes, and adjusting the interest rate for existing housing loans. The intensity of these measures is the highest since the new policies on September 30, 2014. As the real estate sector also carries profound transmission effects such as labor employment and residents' wealth expectations, this new policy will dispel market concerns about policy coordination. It is of great significance in the current context of poor repair of post-pandemic corporate/residential balance sheets.

3. The Hong Kong stock market has reached the bottom area of this round of retracement.

(1) From the perspective of comparing the first rebound amplitude of the Hang Seng Index with the subsequent retracement amplitude in the long-term cycle, the Hang Seng Index has retraced to around 18,000, which has basically reached the expected level.

(2) Valuation: As of August 30, the forward PE ratio of the Hang Seng Index was 8.7 times, below the mean-1STD since 2010, while the Hang Seng ERP is above the historical average.

(3) Looking at the short-selling indicators, the Hong Kong stock market also shows bottom characteristics. Recently, the proportion of short-selling transactions on the main board of the Hong Kong stock market has reached a high level of nearly 20% (close to the oversold level at the bottom of the Hong Kong stock market in October last year).

4. Hong Kong stock industry allocation? Grasping two clues of risk-on.

(1) Foreign capital is sensitive to liquidity: Hong Kong stock internet, discretionary consumer goods (textile and apparel/food and beverage), and large financial institutions.

(2) Reversal of the dilemma and the internal and external demand chain: real estate, building materials, new energy vehicles, household appliances, and engineering machinery.